Lilly View Provides Relief, Diabetes Drug On Track

Lilly shares rose 3 percent on Thursday as analysts also expressed relief that Lilly would seek approval for a key diabetes drug next year.

Eli Lilly & Co predicted earnings growth of as much 15 percent next year, excluding costs from its ImClone Systems acquisition, heartening investors who feared negative foreign currency trends would badly hurt results.

Lilly shares rose 1 percent on Thursday as analysts at the company's annual investor meeting, at which it reviewed its roster of experimental drugs, also expressed relief Lilly would seek approval next year for a key diabetes drug.

But some analysts said the meeting left them doubtful Lilly has enough drugs in late-stage testing to offset expected plunging sales of its Zyprexa schizophrenia drug when the $4.8 billion-a-year product faces generic competition in late 2011.

"It does not look like Lilly's Phase 3 drugs are strong enough to come even close to filling the void" from patent expirations, said Sanford Bernstein analyst Tim Anderson.

"To get comfortable with the company, you have to get comfortable with the pipeline," said Anderson. He noted the meeting focused mainly on drugs in early and mid-stage trials whose eventual approvals are far from certain.

Lilly touted the $6.5 billion ImClone deal as helping it become a biotech powerhouse, and affirmed its crucial prasugrel blood-clot preventer was on track to launch next year.

Lilly shares have fallen 32 percent this year, in part because of the delayed approval for prasugrel and worries about looming generic competition for Zyprexa and other drugs.

Chief Financial Officer Derica Rice said in an interview that Lilly was preparing for the post-Zyprexa period by improving productivity, bringing down costs and replenishing its drug pipeline. The company expects to launch two drugs per year starting in 2013, Rice said.

"Will we be able to replace Zyprexa dollar-for-dollar in the first 12 months? Maybe not," Rice told Reuters. "But do we have the opportunity to grow post Zyprexa? Yes."

The Indianapolis-based company forecast 2009 earnings per share of $4 to $4.25, including a 30 cent to 35 cent hit from the ImClone acquisition, which was completed last month.

Analysts on average expected $4.26 per share, according to Reuters Estimates. Many analysts underestimated costs from the ImClone deal, according to Lilly.

But excluding costs from the ImClone deal, Lilly expects earnings of $4.35 to $4.55 next year, which would imply annual growth of 8 percent to 15 percent.

"There was a relief that things were not as bad as people thought, especially for a not-expensive stock in a choppy overall market," said Miller Tabak analyst Les Funtleyder.

The strengthening dollar is now hurting overseas sales of U.S. drugmakers, an unwelcome turnaround from benefits of the weak dollar seen in recent years.

The negative currency impact on Merck's 2009 forecast surprised Wall Street last week, but analysts noted that Lilly -- which has about half its sales from overseas -- appeared to avert harm.

"The biggest thing they demonstrated is that they have developed a good strategy to hedge against currency," Leerink Swann analyst Seamus Fernandez said.

Although near-term earnings look good, Fernandez said the company's experimental drugs failed to arouse much excitement.

"The only things that can change the profile of Lilly (soon) after 2012 are prasugrel and Byetta LAR," he said, referring to a once-weekly form of its Byetta diabetes drug.

Analysts were pleased Lilly expects to seek approval by the end of the first half of 2009 for the new version of Byetta. The current version is injected twice a day.

Recent reports of pancreatitis tied to Byetta have hurt the drug and clouded prospects of the new version, which Lilly is developing with Amylin Pharmaceuticals. Amylin shares rose 20 percent on news of the impending drug application.

Lilly expects three experimental cancer drugs from the ImClone deal to be in late-stage testing next year.

CEO John Lechleiter has taken bold steps in his eight months at Lilly's helm, sealing the ImClone acquisition as well as making significant risk-sharing and cost-cutting deals.

But Lechleiter offered little interest in a large pharmaceutical merger, saying Lilly's best path forward was to remain independent.

Lilly backed its long-term forecast of double-digit compound annual earnings per share growth from 2007-2011, and stuck to its 2008 forecast of $3.97 to $4.02 per share, excluding big charges from the ImClone deal.

Lilly shares rose 42 cents to $35.43 in late-afternoon trading on the New York Stock Exchange.